What is Emissions Trading?
Emissions trading, also known as cap and trade, emissions trading scheme (ETS), aims to reduce greenhouse gases that contribute to global warming. It involves the process of buying and selling permits and credits that allow the permit holder to balance out their own carbon footprints.
These transactions, together with reducing carbon emissions directly, are mechanisms with which net zero transitions can eventually be achieved.
Futures contracts of carbon allowances can be bought and sold on an exchange. Trading in carbon allowances also results in a transparent price of carbon emissions. This price signal incentivizes companines to invest in clean and renewable technologies.
What is the difference between a carbon allowance and a carbon offset?
A carbon allowance is a permit to emit, while a carbon offset is a certificate awarded for a proactive initiative which reduces or removes emissions. A simple example of a carbon offset is planting a tree.
Carbon offsets can be used for voluntary carbon reduction commitments and for compliance within a cap and trade program. Each cap and trade program has unique rules regarding what qualifies as a carbon offset and what amount can be used for compliance.
Source: Intercontinental Exchange
INTRODUCING EMISSIONS TRADING FUTURES PRODUCTS
KGI (Singapore) is now offering investors access to CME Group’s CBL Global Emissions Offset (GEO) futures and Intercontinental Exchange’s EUA Futures contracts.
Click on the buttons below to find out more:
CME CBL Global Emissions Offset (GEO) Futures
The CBL Global Emissions Offset (GEO) futures contract is a market-based solution built on an international framework, and is positioned to harmonize the buying and selling of offsets from registries and emission reduction projects around the world. The physically settled contract allows for delivery of CORSIA-eligible voluntary carbon offset credits from three registries: Verified Carbon Standard, American Carbon Registry, and Climate Action Reserve.
Deliveries will be facilitated through CBL, a global leader in spot energy and environmental markets that facilitates the secure and seamless trading of physical commodities like carbon, renewable energy, water, and gas.
Key Benefits:
- CBL GEO futures offer the first physically settled, exchange-traded risk management tool for voluntary carbon offsets.
- Businesses’ carbon emissions can be offset through emissions reduction projects vetted through CORSIA’s global, standardized framework – enabling better management of ESG requirements.
- CBL facilitates delivery of offset credits and can help firms onboard with approved registries for seamless delivery.
- Standardized, transparent markets foster true price discovery for participants, providing fair market valuations of carbon offsets.
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Watch: Understanding the Carbon Offset market |
Contract Specifications
| CONTRACT | CBL Global Emissions Offset Futures |
|---|---|
| COMMODITY CODE | GEO |
| RULE CHAPTER | 1269 |
| LISTING PERIOD | Monthly contracts listed for the current year and the next three calendar years. List monthly contracts for a new calendar year following the termination of the December contract of the current year. |
| CONTRACT SIZE | 1,000 Environmental Offsets |
| MINIMUM PRICE TICK | $0.01 per environmental offset |
| VALUE PER TICK | $10.00 |
| BLOCK TRADE MINIMUM THRESHOLD | 10 contracts |
| TRADING AND CLEARING HOURS | Sunday - Friday 6:00 p.m. - 5:00 p.m. (5:00 p.m. - 4:00 p.m. CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT) |
ICE European Union Allowance Futures (EUA)
The EUA Futures Contract is a deliverable contract where each Clearing Member with a position open at cessation of trading for a contract month is obliged to make or take delivery of Carbon Emissions Allowances to or from the Union Registry in accordance with the ICE Futures Europe Regulations.
The ICE EUA Carbon Futures Index measures the performance of a long-only basket of ICE EUA Futures Contracts. Each EUA Contract is euro-denominated and represents a lot of 1,000 Carbon Emission Allowances that are deliverable to or from the Union Registry under the European Union Emissions Trading System (ETS). Each carbon emission allowance is an entitlement to emit one metric ton of carbon dioxide equivalent gas.
EUA Contracts trade on ICE Endex and clear on ICE Clear Europe. Prior to June 7, 2021, EUA Contracts traded on ICE Futures Europe.
Contract Specifications
| CONTRACT | ICE EUA Futures |
|---|---|
| CONTRACT SYMBOL | C |
| TRADING SCREEN HUB NAME | EUA |
| UNIT OF TRADING | European Union Allowance (EUA) |
| CONTRACT SIZE | One lot of 1000 EUAs. Each EUA being an entitlement to emit one tonne of carbon dioxide equivalent gas. |
| MINIMUM TRADING SIZE | 1 lot |
| TICK VALUE | €0.01 per tonne (i.e. €10.00 per lot). |
| TRADING AND CLEARING HOURS | Open 08:00, Close 18:00 (CET), Monday – Friday |
